Taxes Consolidation Act 1997 Schedule 24 paragraph 9

Indirect tax credit for certain dividends

Paragraph 9 of Schedule 24 ensures that where a double tax treaty limits indirect tax credit to certain classes of dividend, a dividend of a non-qualifying class paid by a subsidiary to a parent controlling at least half the voting power is nonetheless treated as a qualifying-class dividend for credit purposes.

• A double tax treaty may allow credit for underlying foreign tax (tax not charged directly on the dividend) but restrict that credit to specified classes of dividend only.
• Where a dividend falls outside the classes covered by the treaty, this paragraph can extend the credit treatment to that dividend.
• The extension applies only if the recipient company controls, directly or indirectly, not less than 50 per cent of the voting power in the company paying the dividend.
• The effect is that the dividend is deemed to be of a class for which the treaty provides indirect tax credit, so underlying foreign tax on the paying company's profits is taken into account.